Table: Online Promotions: Back from the Grave
E-tailers are slashing prices, offering free shipping, and testing other promotions. Here are some of the strategies and risks:
FREE SHIPPING: Amazon.com, Overstock.com, BestBuy.com, and others are offering free shipping to lure customers. In June, Amazon began testing free shipping for orders of $49 or more, down from a $99 minimum.
THE RISK: Margins will be squeezed. On a $60 order, Amazon used to make $15 in gross profit. Now, it'll make $12. Amazon is betting the offer will raise revenues--and boost profits.
PRICE WARS: In June, Buy.com, which sells everything from books to phones, offered book prices 10% cheaper than Amazon's. In addition, Buy.com threw in free shipping except for speakers and other heavy items.
THE RISK: The e-tailer will eat the shipping costs and lose money on low-margin, single-item orders. It's hoping that customers, drawn by free shipping, will order multiple items.
CONDITIONAL DISCOUNTS: In May, Drugstore.com began offering customers who spent less than $200 a year at the site 5% discounts on every order above $200 annually. It hopes this will lift overall sales.
THE RISK: Consumers stocking up on low-margin items, like Q-tips, could hurt profits. Drugstore.com is testing the promotion on a small group of people and will discontinue it if necessary.